UK inflation falls as supermarket war leads to prices being slashed

A savage supermarket price war on everyday food staples has sent the rate of inflation tumbling to its lowest level for four and a half years.

Prices rose just 1.5 per cent in May, down from 1.8 per cent in the previous month, and far lower than most City forecasters had been expecting.

It was the sixth month in a row that the official measure of inflation, the Consumer Prices Index, has been below the Bank of England’s two per cent target.

The 1.5 per cent annual rise in the cost of living is the lowest since October 2009. Prime Minister David Cameron said in a tweet: “Good news that inflation is at its lowest for five years — it means more stability and financial security for everyone.”

Government number crunchers say a fall in the cost of trolley staples such bread and cereals, meat, vegetables and soft drinks was a major factor in the drop in the headline rate. Overall food and non-alcoholic drink prices dipped 0.6 per cent year on year, the sharpest fall since October 2004 and the first since March 2006.

Tesco, Morrison and the Co-op have all pledged huge price-cutting offensives in recent months as they attempt to fight off discount retailers who have bitten into their market share.

Morrisons, which has suffered the most of the “big four” supermarkets from the rise of Aldi and Lidl, said it would cut a total of £1 billion off more than 1,200 food and drink lines.

Clothes prices fell slightly, by 0.1 per cent year on year, while air fares also got cheaper, although this was mainly due to the different timing of Easter.

Samuel Tombs, UK economist at forecasters Capital Economics, said the strength of the pound making imports cheaper and political pressure to keep the lid on energy bills were also helping to keep inflation low. He said the rate could ease to as low as one per cent by the end of the year.

The latest figures come days after Bank of England Governor Mark Carney strongly suggested that interest rates may have to go up sooner than expected to head off the risk of rising inflation.

Shadow treasury minister Catherine McKinnell said: “The fall in the rate of inflation is welcome, yet most people are still feeling the squeeze.

“Wages after inflation have now fallen by over £1,600 a year under David Cameron and the link between the wealth of the nation and family finances is broken. A huge turnaround would be needed to ensure working people aren’t worse off than when this Tory-led government came to office.”

Separate figures from the Office for National Statistics also showed annual London house price rises accelerating to 18.7 per cent to hit a record average £485,000. However, the rate is expected to ease in the next few months.